"Strategic Asset Allocation with Predictable Returns and Transaction Costs"
We propose a factor-based model that incorporates common factor shocks for the security returns. Under these realistic factor dynamics, we solve for the dynamic trading policy in the class of linear policies analytically. Our model can accommodate stochastic volatility and liquidity as a function of same factor exposures. Calibrating our model with empirical data, we show that our trading policy achieves superior performance particularly in the presence of common factor shocks.
Each author name for a Columbia Business School faculty member is linked to a faculty research page, which lists additional publications by that faculty member.
Each topic is linked to an index of publications on that topic.